How open banking can drive competitive advantage


In the banking sector, the concept of “open” can seem contradictory. Banks traditionally have a “duty of care” to protect their assets rigorously, as required by regulators and customers. Yet today banks are faced with increasingly complex requirements.

The blending of the financial and technology sectors has created a world in which banks protect our assets, but they are also asked to constantly innovate, create new customer channels or services, and maintain compliance across a changing regulatory landscape. To keep pace and remain competitive, banks must take another page from the technology world and embrace open architectures.  

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APIs are a mainstay of today’s technology and start-up culture, and they are a primary mechanism for building open architectures and platforms. From Yahoo to Facebook, Google, Amazon and more, industry vanguards and emerging companies alike have allowed third parties to access and build upon their codes and platforms via APIs. While giving peers and, in some cases, competitors “access to the house” might seem counterintuitive, the results are remarkable—continuous, rapid innovation, continued product development, and an open ecosystem of knowledge sharing.

Why open banking now?

From a regulatory standpoint, efforts are underway to make open banking and open APIs standard. For example, in the EU a revised Payment Services Directive (PSD2) was released in 2016 that includes a series of technical guideline and standards for the use of APIs. PSD2 mandates the opening of banks’ APIs to third parties. Countries have two years to make it national law. From that point onward, banks will have roughly 18 months to implement the regulations. We expect to see new processes and software in place to address the regulation in 2019 and beyond.

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